I’m a private lender who typically lends to rehabbers. But I’m thinking about lending down-payment money for owner-financed deals. Do any of you investors think this will fly? Here’s what I’m thinking: Loan down payment money (up to 50% of the property’s conservative value). The only catch is the property must be free and clear, and the seller must be willing to put me in first position. I was thinking this could be a way for buyers to get into rental properties with nothing down, and for sellers to put cash in their pockets when it would otherwise be hard to find someone with a decent down payment. Your thoughts please.
So is it fair to assume that an owner who is financing his home will accept second position to you?..I find it hard to comprehend someone would do that or be advised by their attorney to do that…And I lend privately and I would never do what you are talking about…Lending to someone with no skin in the game is a recipe for disaster…Think about it…What does the borrower have to lose if things get tough for them…They simply walk away and you are left with no equity…I would abandon this idea…Collateralized lending is the only safe way to lend in this market…
Rookie is right. There isn’t a lender in the world who would loan the majority of the money and take second lien. This is the reason why Lenders require seconds to be subordinated before they will lend, especially on refi’s.
I don’t think anything is wrong with lending a small down payment amount as long as they are getting the house for a price you wouldn’t mind paying for it if they default.
Being in a second position if a small amount is loaned isn’t a bad thing. You should be able to get a good return on the money, too as it is in a second position.
That’s my point exactly…As a HML I never want any properties…My business is to circulate my money through highly collateralized loans and gain compounded interest…These loans are not highly collateralized…They are complicated and risky in a falling market…And to be in second position is far more risky than first position…You have to maintain the necessary capital to payoff the first position if the deal goes bad…The rate of default of these deals will surely be quite high and in a short period of time this person will have a stable of homes to complete and less capital available to lend on lucrative collateralized deals…I tend to respectfully disagree with you…These are not the type of deals I would lend on…